Source: Source: St. Petersburg Times

I have always found it interesting that many real estate professionals define market value as the price someone is willing to pay for a property. However this assumption can often be far from reality and is why real estate brokers and real estate appraisers can be at odds on some transactions.

The real estate broker’s job is to get the highest price for the listing they represent, while the real estate appraiser (abridged version) has the responsibility of estimating the reasonable value that a fully informed buyer and a fully informed seller would likely agree on.

What happens when the seller is located on a parcel of land that is of key importance to a larger adjacent development? Thats where reality leaves the picture.

Take this example, which occured recently in St. Petersburg Florida [St. Pertersburg Times]. A modest house was purchased for $76,000 in 1992 and underwent little improvements. The property just recently sold for $1M after being appraised for $141,200. Its a small house on 1/10 of an acre.

The property was a key parcel in a larger development plan and the seller was willing to pay significantly more for the property. A typical mortgage lender would never provide financing on this house for this value because the price paid reflects the investment value to the buyer, not market value to the typical buyer.


2 Responses to “The Price A Buyer Is Willing To Pay Is Not Always Market Value”

  1. Robert Coop says:

    Your example is not valid. The value of the subject property goes, in this case, to highest and best use. Thats reality.

    Of course a lender would not consider a “typical” residential mortgage on this property. But what about a typical commercial lender?

    Finally. The value of that particular property does not lie in it’s investment potential. The value could, however, reflect it’s use (theres that word again) as a street, utility corridor, easement, park, open space or a multitude of other uses related to it’s attachment to the larger development.

    Coop

  2. Jonathan J. Miller says:

    I see your point Coop. Thanks. I was trying to illustrate a point about brokers and appraisers and their view of value and picked an incorrect example.